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Retirement may seem like a far-off event when you're just starting your career as a young professional. A recent survey found that two-thirds (63%) of Gen Z and Millennials agreed that employee benefits (retirement plan, health care, time off) were essential to them. Retirement savings should be a top priority, regardless of age. The earlier you start saving, the more time your money has to grow, which can make a massive difference in the money you'll have available for retirement.
Unfortunately, many young professionals face challenges when saving for retirement. For example, they may have student loans to pay off, low salaries, or other expenses that make it difficult to save money. An astonishing recent Bankrate survey found that nearly 33% of Gen Z workers have not saved for retirement. With a solid plan and a commitment to making saving a priority, anyone can take steps toward a comfortable retirement.
This article will discuss strategies for how young professionals can prioritize retirement savings. We'll cover everything from assessing your financial situation to prioritizing saving and staying on track over the long term. Following these tips, you can prioritize retirement savings and set yourself up for a comfortable future.
Assessing Your Financial Situation
Before you can start saving for retirement, assessing your current financial situation is essential. It will help you understand where you stand, set realistic goals, and identify any potential roadblocks that could stand in your way.
First, take a look at your current income and expenses. It will give you a sense of your monthly cash flow and how much money you have to save. It's essential, to be honest about your spending habits and identify areas where you could cut back.
Next, think about your financial goals. For example, how much money do you want to save for retirement? What other financial goals do you have, such as paying off debt or saving for a down payment on a house? A clear understanding of your goals will help you prioritize your savings and plan for achieving them.
Finally, consider any potential roadblocks that could prevent you from saving for retirement. For example, do you have many student loans or credit card debt to pay off? Are you currently living in an expensive city or paying high rent, making it difficult to save money? Identifying these roadblocks will help you develop strategies to overcome them and stay on track with your retirement savings goals.
By taking the time to assess your financial situation, you will better understand how to plan for retirement savings. You'll have a clear sense of your income and expenses, financial goals, and any potential roadblocks you may need to overcome. In addition, it will help you create a realistic plan for saving for retirement that you can stick to over the long term.
Starting to Save for Retirement
Now that you've assessed your financial situation and set some realistic goals, it's time to start saving for retirement. Here are some tips to get started:
Understand the power of compound interest: Compound interest is the interest earned on both the principal and the accumulated interest. Over time, this can lead to significant growth in your retirement savings. The earlier you start saving, the more time your money has to compound, significantly affecting the amount you'll have saved for retirement. See the example below.
Take advantage of retirement savings options: There are a variety of retirement savings options available, such as 401(k) plans, Individual Retirement Accounts (IRAs), and Roth IRAs. These plans offer tax benefits and can help you save for retirement more effectively.
Decide how much to contribute: The amount you should contribute to your retirement savings will depend on your financial situation and your goals. However, as a general rule, we usually recommend clients save at least 10-15% of their income for retirement.
Understand tax implications: Depending on your retirement savings options, there may be tax implications to consider. For example, contributions to a traditional 401(k) plan are with pre-tax dollars, which means you'll pay taxes on that money when you withdraw it in retirement. On the other hand, contributions to a Roth IRA are with after-tax dollars, which means you won't have to pay taxes on the money when you withdraw it in retirement.
For example, look at these two charts showing how using a 401(k) while starting early, plus the power of compound interest can help you reach your retirement goals much quicker.
You can download the PDF by clicking on either image to view these charts in greater detail.
By understanding the power of compound interest, taking advantage of retirement savings options, deciding how much to contribute, and understanding tax implications, you can start saving for retirement in a way that makes sense for your financial situation and goals. Don't be afraid to ask for help from a financial planner, financial advisor, or wealth management advisor if needed. The sooner you start saving, the more time your money has to grow, so taking action and getting started as quickly as possible is crucial.
Making Saving a Priority
Saving for retirement is a long-term goal, and letting other financial priorities get in the way can be easy. For example, if you pick up the passion for exploring the world and want the liberty to travel or buy that expensive fancy car. However, it's important to prioritize saving to set yourself up for a comfortable retirement. Here are some strategies for making saving a priority:
Create a budget: Creating a budget can help you understand where your money is going and identify areas where you can potentially cut back. Make sure to include retirement savings as a line item in your budget, and make it a priority to contribute each month to your retirement savings plan.
Cut expenses: Look for ways to cut costs and save money. Try cooking at home instead of eating out, cutting back on subscriptions or memberships you don't use, or finding ways to save on utilities and other bills.
Increase your income: Finding ways to increase your income can help you save more for retirement. For example, consider asking for a raise at work, taking on freelance work, or finding a side hustle that can help you earn extra money.
Automate your savings: One of the easiest ways to make saving a priority is to automate your savings. For example, set up automatic contributions to your retirement savings plan each month so that the money is automatically deducted from your paycheck before you have a chance to spend it.
Making saving a priority allows you to set yourself up for a comfortable retirement. Creating a budget, cutting expenses, increasing your income, and automating your savings are all strategies that can help you prioritize saving and stay on track with your retirement savings goals. Remember, the earlier you start saving, the more time your money has to grow, so taking action and prioritizing saving for retirement is essential.
Staying on Track
Saving for retirement is a long-term goal, and staying on track over the years is crucial to ensure you can meet your savings goals. Here are some strategies for staying on track:
Regularly monitor and adjust your retirement savings plan: Your financial situation may change over time, so it's essential to periodically review your retirement savings plan to ensure it's still on track. For example, if your income changes or you have unexpected expenses, you may need to adjust your savings plan to ensure you're still saving enough for retirement.
Make smart investment choices: The investments you choose for your retirement savings can significantly impact the money you'll have available in retirement. Make sure you're choosing investments that align with your risk tolerance and have a good track record of performance.
Stay focused on the long-term goal: Getting caught up in short-term expenses and forgetting your long-term retirement savings goals is easy. However, it's essential to stay focused on the big picture and remember why you're saving for retirement in the first place. Keeping your eye on the prize can help you stay motivated and committed to your savings goals.
By regularly monitoring and adjusting your retirement savings plan, making smart investment choices, and staying focused on the long-term goal, you can keep on track with your retirement savings over the years. Remember, saving for retirement is a marathon, not a sprint. By taking small daily steps to prioritize your retirement savings, you can set yourself up for a comfortable future.
Your Takeaways
Saving for retirement may seem overwhelming, but it's an important goal that every young professional should prioritize. By assessing your financial situation, starting to save for retirement, making saving a priority, and staying on track over the long term, you can set yourself up for a comfortable future.
Remember, the earlier you start saving for retirement, the more time your money has to grow because even small monthly contributions can add up over time, thanks to the power of compound interest.
Don't be afraid to ask for help from experienced professionals. For example, a financial planner, financial advisor, or wealth management advisor can offer guidance and support as you work towards your retirement savings goals.
Ultimately, saving for retirement is about taking control of your financial future and making decisions that will benefit you in the long run. Following these tips, you can prioritize your retirement savings and set yourself up for a comfortable and secure future.
P.S.: We help young professionals like yourself in Los Angeles, California & Denver, Colorado, surrounding areas, and nationwide too, so if you're a young professional in these areas and looking for retirement planning guidance, we're here to help!
Ready to take control of your financial future? Schedule your free financial assessment and discover how working with a wealth management advisor is accessible and helpful in reaching your financial goals. Start building the future and wealth you deserve.
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